Research On Profit Model Of Chinese Commercial Banks Based On Risk Management

In2011, Chinese banks presented people a satisfactory finished paper, but the plight of entity economy is a sharp contrast to the lucrative benefits. This phenomenon has sparked heated discussions. However, after six months, many changes have happened in the external environment such as economic downturn, narrower margins, financial disintermediation, and increase in non-performing loans, etc. Those factors make people’s attention shift from the windfall profits to the assets quality. Similar stories have been fully shown in the subprime mortgage crisis and the European debt crisis. This prompts some reflections on the commercial banking profit model:why do the commercial banks get into the crisis so quickly after getting excessive profits? Why are the commercial banks, professional in operating risk, on the verge of bankruptcy for losing control in risk management? It is difficult to find a satisfactory answer to those problems from the profit model based on accounting profit and the "financial institutions view" focusing on supply analysis.This dissertation has a deep analysis on the commercial banks’risk profit model following the research thinking patterns orderly:putting forward questions, theoretical study, empirical study, and countermeasures study. First, according to the "financial function view" theory and value chain theory and starting with client risk service demand, it builds the Trinitarian risk profit model and studies the process of risk value creation. Based on the former work, this dissertation comes forward the theoretical models of the optimal risk profit model framework. Second, after a comparative analysis on the profit model of the foreign commercial banks, especially the U.S. commercial banks, this dissertation points out that the shortages in the foreign risk profit model (initiation and distribution of risk).At the same time, this dissertation, employing multiple linear regression analysis, factor analysis and cluster analysis, carries out an empirical analysis about the profitability influential factors of China commercial banks. It applies value chain method and special survey data to analyze the main value chain of the commercial banks in China and summarizes the basic features of the existing profit model of China’s commercial banks. Finally, it analyzes commercial banks existing profit model and challenges facing in the main value chain from client demand, economic growth, regulatory requirements, technological progress, etc. Based on the inherent requirements of the commercial banks profit model, this dissertation puts forward the suggestions for the strategic transformation of the commercial banks risk profit model. And according to the inner requirement of the risk profit creation, it puts forwards the improvement measures for risk value restructure.Starting from the client needs combined with financial function theory and value chain theory, and in accordance with the risk performance standards, this dissertation draws the following conclusions:1. Profit model of commercial banks belongs to risk profit model. Based on the "financial function view", this dissertation combs through the evolution process of finance division of labor and specialization and compares the core functions of commercial banks and features showed in various phases; then it points out that commercial banks seemingly are the centers of financial intermediation, but they essentially are risk business intermediary. In this case, risk management capability is no longer subordinate to the business development category, or a tool to passive control, transfer, or avoids risk, but guides strategic decision, decides development goal, proactively identifies and takes risks and creates the core competitiveness of value-at-risk. Commercial banks risk value is generated from the client risk service and is achieved through risk operating strategic, risk value creation and risk performance evaluation at the strategic level. And from the operational perspective, it is realized through risk identification, risk transference, value creation, and performance evaluation. From the functional perspective, approaches to the realization of value creation is to optimize the five core function modules including risk channel, risk financing, risk credit, risk wisdom, and risk investment. Commercial optimal risk profit value network should be centered with client demand and break the shackles of internal department and shackles between different enterprises. And it should take the risk function module as the basic unit to collaborate and integrate the whole risk service industry chain.2. Defects of the commercial banks existing profit model lie in the expansion in risk management subordinate business, over-enlarged operating leverage, continuous accumulated systemic risk which is even in outbreak. With financial innovation, foreign commercial banks change their profit model from "releasing and holding loans" pattern to "releasing and transferring loans" which has enlarged the operating leverage continuously. The fundamental reasons for their failures lie in that making the clients take more risks than they could and excessively overdraft the social credits and liquidity. Domestic banks greedy pursuit of the scale expansion in the situation of rising money supply rapidly but ignore the systematic risk in the era of economic downturn. The profit model only focuses on the scale, Operating procyclical, and profit is mainly come from the spread income of wholesale business, and risk management eventually depends on government implicit guarantee. Problems existing in building value chain are ignoring client needs, having same natures in various chains, repetitions and tediously long for the chain length, dispersing in allocation of resources and inefficient management.3. China’s commercial banks profit model and value chain must be transferred to risk profit model. From the strategic perspective, it should comply with the trend in promotion of client risk preference and increase in risk taking demand, and transfer the single financial intermediation into fully functional risk service intermediation including function transformation, mode transformation, performance evaluation transformation and so on; furthermore, the specific measures include upgrading risk management ability and risk business structure, building early warning index system, and perfecting structure of risk governance. Commercial banks should select transformation path according to their own risk endowment. From the risk profit chain perspective, it should combine the transformation mentality of risk management, risk business structural optimization, client diversified, and proactive management study and must improve risk value identification, risk transference, risk business structure optimal, risk performance evaluation and improve each support part in accordance with the principle of ancillary integrate.